IMF Executive Board Concludes 2017 Article IV Consultation with Zimbabwe

IMF News, July 7, 2017

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IMF Executive Board Concludes 2017 Article IV Consultation with Zimbabwe

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• Published: July 7, 2017

Overview

• On July 5, 2017, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Zimbabwe.
• Zimbabwe’s economy is facing difficulties driven by a severe drought, slow reform momentum, high expenditure levels since late 2015, and limited access to foreign inflows.
• Fiscal imbalances have become unsustainable and are being financed by rising domestic borrowing, contributing to cash shortages and the introduction of capital and current account controls and quasi-currency instruments in the dollarized economy.
• An overvalued real exchange rate is hurting external competitiveness.

Fiscal, Monetary, and Financial Conditions

• Expansionary fiscal stance, curtailed net capital flows, and declining investor confidence have resulted in cash shortages.
• Budgetary operations are crowding out the private sector; expenditure is tilted towards employment costs and unsustainable agricultural support, inhibiting investment in infrastructure and social outlays.
• Ongoing deficit financing modalities, particularly credit from the central bank, are unsustainable and pose inflationary risks.
• Marked increase in public debt is crowding out private activity, aggravating liquidity shortages, and exacerbating debt distress.
• Dollar scarcity has led to administrative controls on current and capital account transactions.
• Bank asset concentration on non‑liquid central bank deposits and treasury bills has increased financial sector fragility; extensive use of quasi‑currency instruments exacerbates fragility.
• Credit to the private sector remains subdued; some domestic banks face increasing risks emanating from fiscal imbalances.

Structural Reforms and Reengagement

• Some progress has been made on reforms to improve the business climate.
• Limited progress remains on:
  • Implementation of laws applicable to non-indigenous investors.
  • Improvements in the functioning of state-owned enterprises.
  • Upgrades in public financial management, governance, and accountability.
• Zimbabwe has settled all overdue obligations to the PRGT but has yet to reach agreement with the World Bank and other multilateral institutions on the settlement of arrears.
• Reengagement with the international community is facing delays; determined reform implementation and reengagement are key to unlocking external financing, fostering investment, and resolving the debt overhang.
• Directors cautioned against clearing arrears using modalities which exacerbate debt problems.

Executive Board Assessment and Policy Recommendations

• Directors stressed the urgency of fiscal consolidation to restore policy credibility and economic stability.
• Public sector employment costs are at an unsustainable level, constraining social and infrastructure spending.
• Authorities are encouraged to:
  • Engage only in well‑targeted, cost effective, and properly budgeted support to the agricultural and other productive sectors.
  • Enhance tax revenues.
  • Strengthen public financial management and reform state‑owned enterprises.
  • Bolster the regulatory and supervisory framework for the financial sector.
  • Close loopholes in the AML/CFT framework.
  • Roll back exchange controls.
  • Implement comprehensive actions to provide a level playing field for investors through consistent and transparent implementation of laws, and measures to combat corruption.
• Directors underscored the need to restore credibility of the currency regime and safeguard the financial sector.
• Directors welcomed Zimbabwe’s clearance of arrears to the IMF and encouraged an early resolution of arrears to other IFIs and bilateral creditors.

Growth Outlook

• Growth in 2017 is expected to be supported by a strong performance in agriculture mainly due to exceptional rains.
• Medium‑term economic activity is projected to remain subdued pending adjustment and reform to restore fiscal and external sustainability and achieve growth potential.

Key Statistics — Zimbabwe: Selected Economic Indicators, 2013–16

• Output
  • Real GDP Growth (annual percentage change): 2013: 5.3; 2014: 2.8; 2015: 1.4; 2016 (Est.): 0.7
  • Nominal GDP (US$ millions): 2013: 15,224; 2014: 15,834; 2015: 16,072; 2016 (Est.): 16,124
  • GDP deflator (annual percentage change): 2013: 2.9; 2014: 1.2; 2015: 0.1; 2016 (Est.): -0.3
• Inflation (annual percentage change)
  • Consumer price index (annual average): 2013: 1.6; 2014: -0.2; 2015: -2.4; 2016 (Est.): -1.6
  • Consumer price index (end-of-period): 2013: 0.3; 2014: -0.8; 2015: -2.5; 2016 (Est.): -0.9
• Central government (percent of GDP)
  • Revenue and grants: 2013: 24.6; 2014: 23.8; 2015: 23.3; 2016 (Est.): 21.7
  • Expenditure and net lending: 2013: 26.7; 2014: 25.4; 2015: 25.9; 2016 (Est.): 30.8
  • Overall balance (cash basis): 2013: -1.9; 2014: -8.8; 2015: [blank in source]; 2016 (Est.): [blank in source]
• Money and credit (US$ millions)
  • Broad money (M3): 2013: 3,888; 2014: 4,377; 2015: 4,736; 2016 (Est.): 5,638
  • Net foreign assets: 2013: -730; 2014: -693; 2015: -628; 2016 (Est.): -556
  • Net domestic assets: 2013: 5,100; 2014: 5,367; 2015: 5,611; 2016 (Est.): 6,292
• Money and credit (annual percentage change)
  • Domestic credit (net): 2013: 6.2; 2014: 4.2; 2015: 8.8; 2016 (Est.): 19.8
  • Of which: Credit to the private sector: 2013: 3.7; 2014: 4.7; 2015: -2.3; 2016 (Est.): -3.6
• Balance of payments (US$ millions)
  • Current account balance: 2013: -2,375; 2014: -2,395; 2015: -1,495; 2016 (Est.): -662
  • (percent of GDP): 2013: -15.6; 2014: -15.1; 2015: -9.3; 2016 (Est.): -4.1
• Official reserves (end-of-period)
  • Gross international reserves (US$ millions): 2013: 284; 2014: 303; 2015: 339; 2016 (Est.): 310
  • (months of imports of goods and services): 2013: 0.4; 2014: 0.5; 2015: 0.6; 2016 (Est.): 0.5
• Debt (end-of-period)
  • Domestic debt (US$ millions): 2013: 479; 2014: 1,764; 2015: 2,281; 2016 (Est.): 4,006
  • (percent of GDP): 2013: 3.1; 2014: 11.1; 2015: 14.2; 2016 (Est.): 24.8
  • PPG external debt (US$ millions): 2013: 5,389; 2014: 6,407; 2015: 6,613; 2016 (Est.): 7,231
  • (percent of GDP): 2013: 35.4; 2014: 40.5; 2015: 41.1; 2016 (Est.): 44.8

Press Release No. 17/267, July 7, 2017 — IMF Communications Department.

References

• The Executive Board
• Zimbabwe and the IMF
• IMF Policy Advice -- A Factsheet
• Press Releases
• PRESS CENTER
• [[1]](https://prd-sitecorecm.imf.org/?sc_itemid=%7BA5427386-C888-4DD7-91C9-5BD998DB6E4F%7D&sc_lang=en&sc_mode=preview)
• http://www.imf.org/external/np/sec/misc/qualifiers.htm
• https://www.imf.org/en/home